Savings v/s Investments: What Gets You Better Returns?

 

Savings and investments are frequently confused as being synonymous terms. One helps you accumulate funds for any short-term expenses or crises, while the other enables you to grow your money over time. In order to manage your money more effectively over the long and short term, as a financially savvy professional, you must integrate some proportion of both categories into your financial portfolio. To help you better plan your finances going forward, we will highlight the fundamental ideas of saving and investing, as well as their goals, risk factors, and eventual returns.

What Is Saving?

Whenever you accumulate a sum of money and park it in your bank accounts, or in the form of FDs or RDs, you're essentially saving it. Saving money typically means that it is available to you anytime you need it, with little to no risk of losing it. To begin with, you can simply consider a savings plan such as the HDFC Life Sanchay Plus plan which offers Guaranteed* Benefit Payouts along with life cover.

Purpose

The purpose of saving money is to cater to your short-term expenses and emergencies. So, if you want to:

1. Plan a family vacation,

2. Fund short term educational expenses

3. Buy a new closet piece or new appliances,

4. Fund an unforeseen event, etc.

You must set a timeline and have a target amount in mind so that you’re able to save up for your wants and needs well in advance, take the money out without any additional fees, and fulfil your purpose.

What Is Investing?

Investing is the process of buying assets and holding them for the long term, which provides better returns over time in exchange for taking more risk. To invest wisely, you must understand the fundamentals and technicalities of investing in different asset classes (stocks, mutual funds, real estate, etc.) and analyse which would give you the maximum returns based on your risk tolerance, investment size, and goals.

Purpose

Investing is a long-term game. Thus, keeping its volatility and liquidity in mind, you must aim to invest for relatively longer periods of time to get the maximum returns. Investing for the long term can help you:

1. Fund your child’s education,

2. Buy your dream home,

3. Plan your retirement,

4. Build long term wealth, etc

Investing is a viable way to use your money and possibly increase your fortune. The power of compounding and the risk-return trade-off are the main reasons investment has a higher growth potential.

Savings v/s Investment: Risk and Returns

1. Degree of Risk -

Savings carry extremely little to no risk, so you will never have to worry about losing your money. However, investment markets are volatile. Thus, it’s crucial to understand the market and your risk tolerance before you start investing.

2. Total Returns -

Saving your money in bank accounts and FDs do not provide higher returns in the future as they provide lower interest rates. However, investing your money in different asset classes can give you unexpectedly higher returns. The greater the risk, the higher the return.

3. Influence of Inflation -

Savings may not help you beat inflation.  If you save a certain amount of money to cover your needs, the same amount of money will typically buy less in the future. As an alternative, investing offers a greater chance for your money to grow in line with inflation, depending on the investment product you choose.

Conclusion

Savings and investing both require a proportionate share of your financial portfolio. Both serve different purposes and enable you to have a smooth financial life. Thus, always learn about the different savings and investment products to choose the most suitable one for yourself and your loved ones.

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• Long Term Investment Options in India 2022
• Tax Saving Investment Options for Tax-Free Income

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